In Japan, cash has long been the preferred method of payment for most transactions. Traditional credit and debit cards have been slow to catch on among the Japanese, and even today it is not unusual to see a purchase worth thousands of dollars paid for in hard cash at Japanese retail stores. However, the long reign in Japan of cash as king appears to be nearing an end, as consumers here move increasingly toward different types of electronic money and payment methods.
Cashless Commuting

Currently, the most visible use of electronic payment in Japan comes in the form of a rechargeable smart card called a ‘Suica’ card. Originally introduced by JR East Railways in November 2001, Suica cards are used primarily as prepaid fare cards on train lines and (more recently) buses. In addition, newer versions of the cards can also be used to make purchases from vending machines, kiosks and convenience stores in and around the stations. As of February 2008, there were 23.7 million Suica cards in circulation.

Suica cards are contactless RFID cards, allowing the carrier to pass through the ticketing gates simply by waving the card in the vicinity of the built-in card reader. The card can also be read without having to remove it from a wallet or bag. The balance is displayed at the ticket gate, and a record of all travel is stored on the card. This convenience, along with the speed and accuracy of the readers installed in the ticket gates, has been widely credited for the rapid adoption of Suica throughout Tokyo. Furthermore, several of the traditional ticket gates in larger stations are now being replaced with ‘Suica-only’ gates.

Like most Japanese electronic money cards, Suica cards employ Sony’s FeliCa (‘Felicity Cash’) RFID technology. Appearing first on the Octopus cards in Hong Kong in 1997, FeliCa is now used on a variety of cards throughout Asia, and has become the de facto standard in Japan. FeliCa employs a dynamically generated encryption key for authentication, and FeliCa-based cards do not require a battery to operate, drawing power instead from the external card reader whenever the card is in range.

I personally had a role in the history of this card, having developed many of its encryption and security protocols. Furthermore, the original requirements for the Suica card were not that of a high tech security and electronic money card but were in fact to address a population density and transportation issue. Specifically, when the card was developed, the original goal was to develop a system that would allow at least 40 people to cross a train turnstile in one minute.

Sony’s Big Push

While the popularity of Suica has been a contributing factor to the adoption of FeliCa-based cards in Japan, it is nevertheless just a small part of a much larger effort by Sony to establish its RFID technology as the nationwide standard for electronic money tranactions. In January 2001, a Sony-led group of eleven major Japanese corporations including wireless carriers NTT DoCoMo and KDDI, established a joint venture company called bitWallet, Inc. to issue prepaid electronic cash cards utilizing FeliCa technology.

BitWallet quickly refined the Edy card (also a FeliCa-based contactless smart card already under development at Sony), and began official distribution in November 2001, starting with just a handful of partner stores. Over the next few years, Sony and bitWallet pushed hard to build alliances with other stores and shops throughout Japan, as well as airlines such as ANA and more recently online services, including amazon.co.jp.

The hard work eventually paid off. Edy is now accepted at most major convenience stores in Japan, and is currently the nation’s leading electronic cash card, with 35.2 million cards in circulation. In April 2006, Intel Corporation announced an investment of JPY 5 billion (US$49 million) in bitWallet, with an eye toward further development of technology for PC-based electronic money transactions.

Jumping on the Bandwagon

Edy and Suica have since been followed by a wide range of competitors, each with their own unique twist on the FeliCa-equipped rechargeable prepaid card theme. Seven & i Holdings, which operates the 7-Eleven convenience stores in Japan (which are considered clean, safe and convenient places to shop), established a subsidiary to issue the nanaco card, the only card that can be used at over 11,500 (1,400 in Tokyo along) 7-Eleven stores. Aeon Credit Services issues the WAON card, which does not require registration. In addition to the prepaid variety, both nanaco and WAON have cards that also include post-pay functionality.

Beyond the realm of convenience store payments, smart cards are also being used in Japan now to prevent minors from buying cigarettes from vending machines. Taspo is the name given to a new contactless smart card that will soon be required for all tobacco purchases made from vending machines. In addition to age verification, however, taspo cards are also able to store value, and can be recharged at the vending machine. Taspo is unusual in that it is one of the few electronic cash card schemes in Japan that does not use FeliCa, opting instead to use MIFARE technology, developed by Netherlands-based (and Philips-founded) NXP Semiconductors.

Cash Cards on a Phone

The effortless, lightning-fast authentication that characterizes Japan’s contactless smart cards represents a tremendous advantage over traditional credit/debit cards. Compatibility among merchant vendors, however, is still a bit of a problem. JR Railways, subways and buses will only accept Suica. 7-Eleven only takes nanaco. Tobacco vending machines require taspo. Taxi’s potentially yet another standard. Ideally, the functionality of all these different cards would be merged into a single device – like the mobile phone.

Not surprisingly, Japan’s largest wireless operator, NTT DoCoMo was involved from the beginning in the effort to spread FeliCa technology, developing a system of applications based around the use of a FeliCa chip in the mobile phone. DoCoMo calls it system ‘Osaifu-Keitai’ (literally ‘wallet mobile’), and licenses it to the other two major wireless carriers, KDDI and SoftBank. As a result, virtually every mobile phone in Japan comes fully equipped with a suite of applications that integrates the functionality of different prepaid cash cards.

So rather than carry multiple cards around, commuters can use the Mobile Suica service on their phone, passing the handset over the RFID reader in place of the card. The same phone, depending on the model already support Edy, nanaco and taspo, as well DoCoMo’s own brand called DCMX iD. Furthermore, these ‘mobile cards’ can recharge themselves automatically over the Internet via the phones themselves, with the charges appearing on the customer’s phone bill, credit card or direct bank debit. In addition to shop purchases and train/bus fares, Osaifu-Keitai services, are being used increasingly for other types of mobile ticketing, including concerts, events, loyalty point tracking and even check-in for domestic airlines.

Bringing It All Together

Indeed in Japan, the mobile phone has proven the ideal device for integrating not just electronic payment methods, but all kinds of advanced functionality. QR-codes (2-D barcodes) are ubiquitous, appearing on print ads, billboards, product packages, web pages, menus at restaurant to show nutritional information and even a dedicated QR-code magazine. Nearly every mobile phone in Japan has a fast and accurate QR-code reader, and most consumers know how to use them. Most phones in Japan today also include GPS functionality, and location-based services which guide the user through the backroads of Tokyo to a designated address, are becoming popular among the “salarymen”. As a parent, tracking the locations of your kid’s whereabouts is also an important feature.

In fact, in a recent study, it was found that 69 million people currently own a cell phone in Japan. (Yes, it’s common to see children as young as five carry one around.) This number is larger than the 66 million people who currently own PC’s. However, what is even more interesting is that 19 million of those cell phone users don’t own a PC. This number is actually growing and increasingly, the cell phone is becoming the primary means of communication whether its voice, e-mail or navigating the internet.

The latest series of handsets, which began going on sale in Japan in autumn/winter 2007 have just about everything one could wish for in a mobile phone. Most of these models, which include W53H from Hitachi on KDDI/au, Sharp’s 920SH AQUOS on SoftBank, and the entire 905i series from DoCoMo, feature international GSM roaming, one-segment hi-def TV program reception, Bluetooth transceiver functions and obviously the ‘Osaifu-Keitai’ capability. In addition, the DoCoMo 905i series of handsets boast HSDPA (High Speed Downlink Packet Access), allowing for data transfer speeds of up to 3.6Mbps as well as cameras (front AND back) that support over 5 megapixel resolution.

With camera resolutions this high, many phones come bundled with several useful applications such as a business card reader with automatic optical character recognition (OCR). This application will read the information off a business card and store the information automatically and directly into your phone’s phonebook. Some phones come equipped with software that will allow you to take pictures of English (or Japanese) text (ie., restaurant menu, map, book, etc…) and will automatically OCR the characters and translate it into Japanese (or English). Finally, some phones canl lock access to the phones (or parts of it) and only unlock after a successful facial recognition authentication.

Perhaps just as impressive as the handset features are the Japanese mobile content services, and the ease with which the content can be accessed and downloaded. Digital music in Japan is dominated by mobile – over 90% of all digital music downloads here are made to a mobile phone. Mobile games in Japan are becoming increasingly sophisticated. DoCoMo introduced ‘chokkan’ games (which use motion sensors) with its 904i series, and these have become standard fare with the 905i releases. Flash Lite is supported on handsets from all carriers, and is used to create a staggering range of mobile casual games and digital content such as comics, novels and other eBooks.

Nearly half of Japan’s 80 million 3G subscribers are now on flat-rate data plans, meaning they can download as much content as they like without a corresponding increase in data packet charges. This widespread adoption of 3G and flat-rate data plans is driving demand for increasingly sophisticated content and services, creating an upward spiral in which consumers are quick to upgrade their handsets in order to gain access to the new services. Newer models coming out in the spring and summer ’08 will allow, as a standard feature, movie downloads.

With the convergence of all these various components – high network speeds, flat-rate plans, music, games, video, email, PDA functionality, GPS, Bluetooth, RFID and now electronic money – it appears that the Japanese wireless carriers, handset manufacturers and content providers have at last brought everything together to create the ultimate ‘all-in-one’ handheld device.